Leasing Equipment Most Likely Will Be The Optimal Way To Grow Your Business

If you are an office manager or a business owner why would you consider leasing rather than paying cash?It makes no difference if you are a start up company or upgrading your existing equipment/facilities, the method used could have a lasting impact on your company.Generally, a company will use one of three methods to acquire assets:o Conventional bank loans: While bank loans will generally advertise the lowest APR on a transaction, they can often times be much more expensive when the sizable security deposit is taken into consideration.o Cash transactions: Although paying cash is universally regarded as the least expensive choice, you should carefully consider other options and the overall costs and effect on the business before paying cash. Cash has a “hidden” opportunity cost of not having funds available for other business uses (like advertising, etc).o Leasing: Leasing allows for 100% financing and can typically include all installation, deliver, and applicable tax. The lease is structured as a “rental” payment for a fixed term at fixed monthly payment. Once the term is paid, there is typically a nominal option to purchase, conveying ownership to the customer.Effects on the growth of your companyIt is safe to say that most businesses intend to grow in strength and scope and that those objectives generally guide business decisions and define the term “success”. It is common knowledge that a majority of businesses fail due to insufficient capitalization and improper management of cash flow. If a company does not have a positive cash flow, it cannot meet the requirements to grow or even stay in business.Taking the above information into consideration, partaking in a cash transaction can severely hinder your companies’ prospects of success. Leasing can free up cash flow and can be a powerful vehicle to drive your business to success.According to the Equipment Leasing Association of America, 80% of U.S. business’ lease some or all of their capital assets (furniture, manufacturing equipment, computers, software, fork lifts, delivery trucks, and industrial shelving.) Most business owners and office managers understand that there is a greater benefit from using these assets compared to owning them. This will allow them to free up capital to inject additional cash into revenue generating items that cannot be financed; such as: sales, marketing, recruiting, and training.Tomorrow is only a day awayA company has to consider the lasting effects on their business when they are acquiring new assets. By participating in all cash transactions, small business owners put themselves at risk for diminished borrowing ability in the future. Lenders have set criteria of what they look at before they are willing to extend credit. They generally are: credit habits of the borrower, capacity to repay, and the collateral.It is very easy to determine the value of cash. If a lender sees that you have $50,000 in cash on your financial statement it is hard to say that the asset is worth anything different then $50,000. In the event you were to take this cash and purchase a piece of equipment for $50,000, the lender has to take into account the applicable taxes, installation of the equipment, sales commissions and equipment depreciation. In many cases this will reduce the value of this asset up to 40%. If the asset now is considered to be worth $30,000 and your business can borrow at five times equity, this cash transaction has reduced your borrowing capacity by $100,000.It is often said that cash is king. If your business needs to acquire new equipment, it is imperative that you retain your borrowing capacity. Businesses and individuals alike often need cash to get an institution to lend. Leasing is a vehicle that allows you to leverage capital and keep funds available to partake in opportunities when they arise.If you are about to make a large purchase for your business, make sure you consider all of your options and think about the impact that it will have on your companies borrowing capacity, tax implications and strategic initiatives.Advantages of leasing over buying equipment:o The ability to have the latest equipmento Consistent expenses in budget planningo Help to manage company growtho No down paymento Increase cash flowo Lower costso Extremely flexibleo Tax advantageso 100% financingo Convenient and fasto Manage Growtho Transfer of risk

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